Nino Brown (Wesley Snipes) is an up-and-coming drug pusher. His brother and right-hand-man, Gee Money (Allen Payne) introduces Nino to a new drug: freebased "crack" cocaine, which Gee says is cheaper to produce and more potent than regular cocaine and is taking the poor neighborhoods of New York by storm. Nino and Gee decide to take over an entire apartment building in Harlem called The Carter for their base of operations. He and Gee Money and Duh Man (Bill Nunn) go about getting cooperation through violence and coercion. Together they drive out any protesting tenants and other crime lords, terrorizing and shooting them openly on the streets in full view of local witnesses.
After a few years where Nino expands his empire and crack addiction has reached epidemic proportions, Detective Stone (Mario Van Peebles) wants to bring Nino to justice, but no one on the police force is crazy enough to go against Nino. Scotty Appleton (Ice-T), a plain clothes cop who is currently serving a suspension for shooting an unarmed suspect who ran during a failed drug deal. Stone convinces Scotty to infiltrate Nino's organization, with the help of another burned-out cop, Nick Paretti (Judd Nelson).
Frankie Needles (Anthony DeSando) visits Nino to deliver a message from the mob - Nino isn't paying the percentage any more. Nino sends him away scornfully, and Frankie advises Don Armeteo (John Aprea), the mob boss. Meanwhile, Scotty and Peretti watch Nino giving out food to the poor, including Pookie (Chris Rock), the young addict Scotty had shot. Scotty recruits Pookie, weaning him off crack and rehabilitating him. Pookie obtains a low-level job working for Gee Money at the Carter. Pookie later explains how to get into the hotel and the setup for distributing crack. Park (Russell Wong) has some hi-tech toys for Pookie to surveil the premises.
Nino is celebrating his success and expressing his friendship with Gee Money. However, he has eyes for Gee Money's girlfriend, Uniqua (Tracy Camilla Johns). Nino's girl Selina (Michael Michele) becomes jealous.
Pookie gets inside, doing menial jobs at first. However Gee Money doesn't trust him fully. Pookie lands a job in the drug distribution area, but starts sneaking drugs and becomes addicted again. Gee Money finds the surveillance device and realizes he's a plant. Gee Money evacuates the area and sets explosives on Pookie's dead body to destroy the building. Scotty and his men enter and try and find evidence and defuse the bomb, but Pookie is dead.
Nino is enraged, and threatens Gee Money. Scotty blames himself for Pookie's death, and vows to continue the investigation, despite Stone's orders. Peretti agrees to help. They enlist Frankie to arrange a meet with Gee Money, posing as big-time buyers who want to cut a side deal with Gee. Scotty gets in with Nino, even protecting him from an irate man (Bill Cobbs). He seeds of doubt into Nino's mind about Gee Money. One night Scotty and Nino hang out on the roof talking about how they both came up. Nino tells Scotty about how he joined his first gang: the gang leaders ordered him to kills someone with one hitch; it had to be a total stranger. Nino, high on coke, killed a woman walking home at night with a bag of groceries. The woman was Scotty's own mother. Scotty decides to hold his fury in check until he and his crew can bust Nino for trafficking and higher crimes.
Peretti breaks into Nino's safe during a wedding and finds financial records on disk. The Italian mob shows up at the wedding disguised as caterers & tries to kill Nino, and he uses a child as a shield to escape. Keisha is killed during the attack, and a war between Nino's Cash Money Brothers (CMB) and Don Armeteo's gang erupts.
Scotty and Peretti meet with Stone and arrange to set Nino up. During the deal, Kareem (Christopher Williams) identifies Scotty, remembering Scotty shooting Pookie on the street, and a shootout ensues. Park is killed, then Duh Man, and Peretti saves Scotty's life.
Gee Money and Nino meet later, and Gee accuses Nino of forgetting their friendship. Nino regretfully kills him. Scotty and Peretti track him down in his apartment and attack him, Scotty forcing Nino & himself out of a second story window. Scotty beats him up and arrests him at the feet of an old man (Bill Cobbs) who'd been trying to get the city police to stop Nino in the old Carter headquarters. While he has Nino pinned to the sidewalk, he tells him that he knows Nino murdered his mother. Peretti talks Nino down, preventing him from killing the gangster.
Nino stands trial and to the astonishment of the courtroom, accuses Kareem of being the head of CMB. He pleads to a lighter sentence, but is killed by the Old Man as he leaves the courtroom. Scotty and Peretti leave, satisfied, and the credits roll after a title card explaining that gangsters like Nino exist in every major city in America and that the crack epidemic will only get worse.